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# Valuation Of Shares

Earning Capitalization
Method (ECM)
Dividend Capitalization
Method

Fair Value
Method
Fair Value = Intrinsic Value + ECM
2
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## Calculation Of Value on Intrinsic Value Basis

Also Known as :

Intrinsic Value
Net Asset Value
Break up Value
Net Worth Per Share
Book Value Per Share

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## Valuation of Intrinsic Value :

Sundry Assets
Less: Sundry Liability

-------------------

Less: Preference Share Capital and
Dividend in Arrear
Net Asset For ESH
Divided By No. of Shares

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Intrinsic Value
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## Note: Goodwill will always be calculated for the purpose of

Intrinsic Value
Note: Sundry Asset and Liability are after :
Revaluation
Rectification
New Policy etc.
Note: Always Calculate Intrinsic Value on Ex Dividend
Basis.
Intrinsic Value =
Cum Dividend

Int. Value
+
Ex Dividend

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Div Per
Share
4

1.

## Earning Yield Method /

Earning Capitalization Method / Yield Method

= Earning Rate
NRR

## Future Marketable Profit

Income Net of tax

Earning Rate =

x 100
Share Capital

## Use : Where large no. of shares is to be valued ( Big Lots)

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Dividend Rate

## Dividend Rate is rate of Dividend Company is expected to

pay.
Normal Dividend Rate is NRR.
This method is applied for Small Lot of shares.
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## Fair Value = Intrinsic Value + ECM

2
This method is to be used for valuation of
shares for controlling Interest.

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## How to Calculate Normal Rate of Return

NRR of Industry is taken as Base
( Risk Premium for each risk)
Ke of Companies
Risk Factors:
1. Dividend Track Record
2. Dividend Coverage Ratio
3. Asset Backing Ratio
4. Debt Equity / Capital
Gearing Ratio
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NRR

## Equity Dividend Coverage Ratio =

PAT Preference Dividend with CDT
Equity Dividend

## Preference Dividend Coverage Ratio =

PAT
Preference Dividend
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## Asset Backing Ratio =

Intrinsic Value Per Share
Paid up value per Share
Capital Gearing Ration =
Debt + Preference Share Holder
Equity Losses Preference Share Holder
Debt Equity =
Debt
Equity
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It can be on the basis of:
1. Shares
2. Cash Flows
1.

## Value as per Share =

Number of
Shares

Value of
Shares

Value per share can be : MP , Intrinsic Value , Fair Value , ECM , DCM

2.